Fed raises key U.S. interest rate

Citing a number of positive economic factors, the U.S. Federal Reserve on Wednesday raised its key U.S. interest rate.

The ¼-point hike raises the target range for the federal funds rate to a range of ¾ to 1%, well above the Bank of Canada’s current benchmark rate of ½%.

In its accompanying statement, the Fed said the American labour market has “continued to strengthen and that economic activity has continued to expand at a moderate pace.” Job gains remained solid and the unemployment rate was little changed in recent months, it said, adding household spending has continued to rise moderately while business fixed investment appears to have firmed somewhat. Inflation has increased in recent quarters, moving close to the Fed’s 2% longer-run objective.

“The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labour market conditions and a sustained return to 2% inflation,” the Fed said.

This marks the third time since 2015 the Fed has raised its benchmark rate. In contrast, the Bank of Canada has cut its rate by a ¼ point over the same period, as it tries to jump start Canada’s still sluggish economy. The Fed statement also left the door open to further rate increases, later this year and perhaps into 2018 as well.

With most economists expecting the Fed to raise rates, the news did nothing to buoy the American dollar, which actually closed lower. Meanwhile, the Canadian dollar gained ground.